Does China GlazeLtd (TWSE:1809) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, China Glaze Co.,Ltd. (TWSE:1809) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for China GlazeLtd

How Much Debt Does China GlazeLtd Carry?

As you can see below, China GlazeLtd had NT$847.0m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has NT$698.9m in cash leading to net debt of about NT$148.1m.

A Look At China GlazeLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that China GlazeLtd had liabilities of NT$966.4m due within 12 months and liabilities of NT$307.7m due beyond that. Offsetting these obligations, it had cash of NT$698.9m as well as receivables valued at NT$658.7m due within 12 months. So it can boast NT$83.6m more liquid assets than total liabilities.

This state of affairs indicates that China GlazeLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the NT$4.21b company is short on cash, but still worth keeping an eye on the balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since China GlazeLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year China GlazeLtd had a loss before interest and tax, and actually shrunk its revenue by 9.1%, to NT$2.4b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months China GlazeLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost NT$73m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But a profit would do more to inspire us to research the business more closely. This one is a bit too risky for our liking. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for China GlazeLtd that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.